Many organizations are required to report financial results based on multiple accounting regulations.
European-listed companies must report their consolidated financial results according to International Financial Reporting Standards (IFRS).
Canadian, Indian, and Korean listed companies will also be required to report consolidated financial results based on IFRS (conversion dates of 2011) with the United States not far behind (2014).
Companies also listed in the United States or belonging to a US group of companies are required to report according to US Generally Accepted Accounting Principles (US GAAP).
The result is quite different depending on your view and your company.
If you analyze the entire concern, you do not focus on single companies in your concern but on the concern in total.
If you analyze single companies, the focus on the result of a legal entity.
If you are responsible for a profit center, you focus on the result of your profit center like it would be a separate company.
Parallel Valuation Views
The view of the individual company and the valuation of business transactions according to legal reporting requirements only represent one of several possible perspectives. Commercial and tax considerations play a dominant role in the legal reporting requirements of the individual companies.
In addition to this legal view, successful corporate and group management also needs accounting information that shows business activities from the point of view of the whole group or of individual profit centers.
It is essential for a group controlling for the entire group that you valuate these business transactions using group production costs (group view). Moreover, in many groups, the management structures do not necessarily coincide with the independent accounting units. An internal moving average price system guides the activities of the individual profit centers according to market principles. Consequently, value flows represented from the point of view of profit centers are vital for the purposes of profit center management and profitability.
The transfer price is a valuation approach used to valuate the transfer of goods and services between independent organizational units.
The transfer price solution in S/4HANA offers the following:
- Multinational groups need to report profitability for the group in total and for the individual units based on the operational flows.
- Up to three parallel valuation methods for legal, group, and profit center valuation provide the following different perspectives on the value chain within a group:
- Legal perspective looks at the business transactions from the point of view of the affiliated companies including markups.
- Profit center valuation treats profit centers as if they were independent companies using, for example, negotiated prices.
- Group valuation looks at the whole group eliminating markups.
Parallel Valuation Approach - Example
The example corporate structure shown above will demonstrate the use of parallel valuation approaches for a multistage production process. From the viewpoint of the profit centers involved, the goods transferred from profit center 1 to profit center 2 appear as an "internal" sale valuated with a special price of 75, defined in PCA (75.00). The goods withdrawal from profit center 2 for an order in profit center 3 is a sale from both the profit center viewpoint and the legal viewpoint, and is valuated separately using the appropriate PCA price and legal price. The same is true for the stock transfer from the finished goods warehouse to the outbound delivery warehouse. For cross-company code transfers between profit centers, you currently need to define the prices for both the legal and the profit center viewpoints in SD.
Flexible Transfer Pricing
If your organization decides to use transfer prices in the profit center viewpoint, you can calculate special moving average prices for all goods movements between profit centers.
This transfer price is a negotiated price between profit centers. It may be based, for example, on the external market price, or it may be determined as a markup on the cost of goods manufactured as seen from the group view or legal view.
These markups can depend on a number of factors, such as the profit centers involved, the product, plant, date, and so on.
Configuration Options - Overview
SAP provides the following two options:
- Parallel valuations updated in parallel single-valuation ledgers.
- Use separate ledger for each valuation.
- Transparent separation of postings and reporting of financial results based on the various regulations.
- Parallel valuations updated in a multi-valuation ledger.
- Use separate amount columns in the same ledger.
- Reduce memory footprint.
- Reduce effort and time for closing activities.
Configuration of Universal Journal for Transfer Prices
For an SAP S/4HANA system with transfer pricing, you configure the following:
Currency and valuation profile
Activation of transfer pricing for the relevant controlling area.
There are specific rules for the currency settings of the universal journal as follows:
Each currency type is assigned to a valuation view.
Currency types in group or PCTR valuation have an assignment to the corresponding legal currency type.
The last digit does not represent the valuation (especially not for currency types in the customer name-space).